That Stock You Hate Is Coming Back in Style

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

Short squeezes are cool again…
Play these names at your own risk…
It’s all fun and games until someone blows themselves up…
How Andy and Landon Swan called NFLX’s earnings drop…
Get this software in your hands by July 30

I’ve never been one to play meme stocks…

And in my opinion, you’d be blessed to not even know what a meme stock is.

For the uninitiated, pure of heart among you, these are basically less-than-quality stocks that are targeted by groups of retail investors with the intention of blowing up short positions in extreme, nigh comical, fashion.

It was hard to avoid hearing about the Gamestop (GME) saga back in 2021, when a group of Reddit-based retail traders conspired to push the struggling brick-and-mortar video game retailer up from a low of about $3 in December 2020 to over $120 a month later.

Lately, we’ve seen obscene surges and quick downfalls in heavily shorted stocks like Opendoor (OPEN), which more than tripled in a few days… Krispy Kreme (DNUT), which shot up 70% in a similar length of time… and Kohl’s (KSS), which shot up 85%.

All of these stocks have given a big chunk of these gains back as I write. Who knows if they’ll ever see those prices again, or if this was a flash in the pan.

Meme stocks are hard to trade by their very nature: They’re based on “memes,” basically inside jokes that, at internet speed, run their course very quickly.

If you’re hearing about a meme stock in the headlines, the joke is over. That’s the thing that’s difficult to really ever put a finger on if you ever set out to trade this stuff.

But what we can put a finger on are the kinds of stocks that are targeted as meme plays. These are generally smaller-cap stocks with high levels of short interest.

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We track short interest and market capitalization in our database. So, we can tick those boxes and get a plan going.

All that’s left is to inject a loose interpretation of what might be considered “funny” on internet message boards, and we can pull out a few ideas.

Let’s start with the data. Here are a few names that might fit our criteria:

All these stocks have a short interest of at least 40% and are in the micro- to small-cap space. To figure out which ones are catching on right now, I’m sorting by one-week change.

KSS, which we’ve already discussed, is right at the top along with a few other oddball names.

Children’s Place (PLCE), for example, is a children’s clothing retailer that seems to have participated in the meme stock craze back in 2021, where it ran over 200% around the same time when GME was making headlines.

More than half of its outstanding shares are sold short. I can’t really see the humor in it, but the mere fact that it’s an old meme stock favorite might be enough to propel it higher.

1-800-FLOWERS.COM (FLWS) is also interesting. For one, its company name is both a phone number and a website URL, which might sit in an uncanny area of ironic humor. It went pretty ballistic throughout 2020/2021, where I presume people figured it had cornered the flower delivery market during the pandemic shutdowns. But it collapsed at the end of 2021 and has continued lower in a brutal downtrend.

However, it’s also seeing its highest daily volume since 2022, indicating the recent surge in price is accompanied by a lot more trading.

Then there’s on-demand aviation company UpWheels (UP) and bowling alley franchise Lucky Strike (LUCK). These haven’t moved much yet. But, come on, UP and LUCK are prime tickers for meme stock traders seeking a bit of irony.

And, hey, at least the chart of UP doesn’t look awful, with its bullish stack of moving averages (courtesy of Jeff Clark’s Convergence system) coinciding with some pretty bottom-y price action…

LUCK’s volume, however, is kind of anemic. It’s up from its 2022 IPO but stuck in a downtrend channel:

Now, I want to couch all this in a sort of anti-endorsement. Watching these names is fun for market nerds like me, but it’s not somewhere I’d put serious money.

If you poke through these names and come up with a great trade idea, then by all means, go ahead and do it.

Just keep your position sizes small. As the charts above show, these tickers can really turn on a dime.

I also continue to think this is a sign of a painful couple months…

When speculative appetite hits a fever pitch, like it seems to be doing right now between meme stocks and altcoins, it’s a sign.

Have you ever been out at a bar or a club so long that the lights come on? The lights expose just how dysfunctional everything has gotten under the veil of darkness in the hours before.

That’s kind of how it feels right now. With the market at new highs and at a seasonal peak for the next several months, the lights are starting to blink on. As they do, traders will start to reckon with the boldfaced price action of the past month… realize the seasonal forces at play and the overbought conditions… and start securing profits.

The institutional traders, for that matter, are about to go on vacation and tank trading volumes. That’s one of the biggest reasons we see seasonal weakness from now through the end of September.

The big catalysts to watch are next week’s FOMC meeting ending July 29, and then the GDP numbers the day after. Traders are currently pricing in next to no chance for a 25-point cut at the coming Fed meeting, with more than a third of traders pricing in no cuts, even at the September meeting:

Meanwhile, the Atlanta Fed’s GDPNow estimate is forecasting quarterly growth of 2.4% for the U.S. economy, down from that 4%+ forecast in early June.

A no-cut Fed meeting followed by a strong GDP print is a mixed message for markets. On one hand, the economy is extremely resilient, and there’s no need for monetary support. On the other hand, cutting rates would be a boon for key sectors like homebuilders – not to mention prospective homebuyers more broadly – as well as small-cap stocks as a whole.

Lots of investors have been impatiently waiting for more rate cuts ever since the Fed’s first cut last year. If we see a strong GDP, we may need to wait even longer for that support. And that, along with seasonal factors, might be just the excuse the market needs to play into the seasonal trend.

The Swan brothers made a great call on Netflix last week…

Another sign of a weak market over the next several weeks has been the reactions to big earnings reports.

American Express (AXP) reported record revenue and beat per-share earnings expectations last week, but still fell more than 2% afterward.

IBM (IBM) also beat on earnings and revenue expectations, but still fell more than 8% from the previous session as investors latched onto comments about tariffs.

People are looking for reasons to sell… and punishing these earnings beats for even the smallest piece of bad news.

But we don’t just have to watch these earnings reports. We can trade them.

Each week in Andy and Landon Swan’s Earnings Season Pass reports, they show their readers the best earnings opportunities of the week… and give them specific trade ideas to play it.

Last week, the highlighted play was on Netflix… with a bearish call that few investors were prepared for. Here’s Landon:

During last earnings season, LikeFolio’s social media signals were lighting up with red flags for Netflix (NFLX): Digital traffic was down 10% year over year, Google searches for “cancel Netflix" were surging, and consumers were looking to downgrade to cheaper plans.

Then, the streaming giant did something unexpected: It stopped reporting its user numbers.

That move took the heat off subscribership, the number we were counting on. It forced the market to focus on other key performance indicators like revenue, which was up 13% year over year. Wall Street rejoiced. Shares soared. Our bearish play resulted in a loss.

Fast forward three months: Netflix is due to report Q2 earnings next Thursday, July 17, after the market close. And LikeFolio data looks even more dire.

Netflix app engagement has fallen 10% from last year’s levels:

The company is losing serious ground to competitors like Disney+ (DIS):

And web visits are bottoming out (plummeting 14% year over year) while the stock price soars:

When we see this kind of striking divergence between a stock’s performance and forward-looking digital demand, especially ahead of earnings, it tells us one thing: The market could be in for a surprise.

Last week, Landon set his subscribers up with an option strategy that would deliver a quick double if NFLX dropped after earnings… and that’s exactly what happened. NFLX dropped 5% after its earnings report, and Andy and Landon’s subscribers cleaned up. Here’s what they had to say in Week 2’s Earnings Season Pass issue:

Huge congratulations to all the Earnings Season Pass traders who took last week’s Netflix (NFLX) Coin Flip – we closed out early for a +104% profit and received a flurry of feedback from those of you who played along with us! Shout out to:

Mike C., who bagged two+90% wins on his 7/18 and 7/25 expirations

Ron S., who got in at $2.45 and out at $4.93 for a +101% gain

Steven M., who nearly “chickened out” on this trade listening to the CNBC talking heads but held strong and ended up making +99.6%. Good thing you ignored their advice, indeed!

Mike H., who netted +101.8%

Bill B., who landed $2,400 in profits

Ray P., a new member who ended up making a little over two grand on his first two trades… nice work!

Janet Q., who only did one option but made out with a gain of +105%

Wayne V., who nailed a solid +60% gain in just a few days

Carleen T., who made $500 per contract, even after getting into the trade later in the day

And Douglas H., who’s now $500 richer after one week of trading

Doubling your money in a few days is what Earnings Season Pass is all about.

Andy and Landon take the best proof points from their social data feed, line them up against a stock’s fundamental and technical strength and find the best possible trade to take advantage.

Trades like this show how effective this approach is.

If you like trading earnings and want a little extra edge on your side, you should check out their research. The next Earnings Season Pass drops this Sunday, with a fresh new idea to trade in next week’s reports.

Learn more here.

There’s not much time left to join Trade Cycles before the bear strikes…

Meme stocks are wild – fun to watch, but nearly impossible to trade. By the time they hit headlines, the move is usually over.

But while meme names rise and fall on hype, there’s a smarter way to trade short-term moves: Seasonality.

Right now, TradeSmith’s Seasonality tool is flashing a major signal – a potential market shift starting July 30. And with volatility ramping up around earnings and Fed decisions, this could be your best shot to profit while others get caught off guard.

TradeSmith’s CEO, Keith Kaplan broke it all down in his latest webinar – including a simple strategy to play short-term pullbacks and an AI stock with an 86% success rate.

That Stock You Hate Is Coming Back in Style